Survey: Firms still do traditional budgeting while 74% of FP&A execs like it

Finance professionals and business leaders alike may complain about budgeting, but they still do it while a surprising number even find it useful, said AFP (Association for Finance Professionals) that recently announced the results of its survey “How Relevant is Your Budget?”.

The survey of 606 FP&A professionals was conducted in August 2017.

Nearly three quarters (74%) of respondents agree or strongly agree that the budget is a valuable tool, according to survey results.

In addition, 82% and 86% believe their CEO and CFO find the budget to be useful or very useful, respectively. The budget is seen as strategic in nature, breaking down long-term strategies into a medium-term plan, said AFP.

Changes in the budgeting process

While traditional budgeting is still done, the process is different. According to AFP, budgets have managerial discretion and flexibility built into them.

“This is a departure from an important past criticism—that the traditional budgeting process promotes sub-optimal behavior by locking managers into a rigid spending paradigm established at the time of the budget, rather than what is best for the company based on the current situation” said AFP in a statement.

This managerial flexibility can only happen because budgets are distanced from compensation and forecasting—20% of respondents primarily cited the budget as a basis for compensation, and 73 percent reforecast at least quarterly.

This leads budgets to focus on business goals and allows for honest forecasts rather than becoming a proxy for negotiated bonuses, AFP noted.

Budgets also dominate periodic performance reviews, AFP observed. Fully 81% of the respondents hold monthly or quarterly meetings; 69% of meeting time is spent reviewing financial results, and almost half of that is a comparison of actual results to budget, and the remaining time is a comparison to prior forecasts or prior year.

Respondents know their budget processes have room for improvement, with more than one fifth (22%) spend more than 12 weeks developing the budget, AFP said.

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